MPSC report continues solar push for utilities

How is electrical power
measured?

The kilowatt-hour is the most common
billing unit for purchasing electricity from power companies.
It is equal to 1,000 watts per hour. For example, 1,000 watts
of power produced over 60 minutes equals 1,000 watts per
hour, or 1 kilowatt-hour or 1 kwh.

One
megawatt equals 1,000 kilowatts or 1 million watts
— enough energy to power 200 average
homes.

The Michigan
Public Service Commission's recommendation
that DTE Energy Co. and
Consumers Energy expand their
solar programs by 50 megawatts could power up to 10,000
additional homes.

The Michigan Public Service Commission is nudging DTE Energy Co. and Consumers Energy Co. toward providing options for more customer-owned solar programs.

It's less than a full push at this stage because the utilities are on track to supply the 10 percent of their electricity through renewable means as required by Public Act 295, which expires at the end of next year.

But the options, contained in a draft report obtained by Crain's Detroit Business, are expected to contribute to the debate in the state Legislature early next year over how best to extend the 5-year-old renewable-energy law.

Gov. Rick Snyder has said he would support legislation increasing the state's 10 percent renewable-energy mandate to possibly 20 percent over 10 years. He has not addressed solar power specifically other than to say increasing Michigan-based renewable-energy jobs is an important byproduct of his plan.

The options in the draft report come from a 42-member work group commissioned by the PSC. It included representatives from the utilities, solar manufacturers, installers, environmental advocates and renewable-energy proponents.

The options would increase the collective 28-megawatt solar power customer programs by at least 50 megawatts over the next 18 months.

Options include allowing customers to build their own solar projects and receive subsidies for the power generated. Customers also could pay full electric rates minus newly designed credits for the solar power generated. Or they could choose some combination of the two options.

Public push

The staff report said the main complaint about DTE's and Consumers' existing programs is the lottery method of awarding solar contracts to customers. The system is inefficient, leads to "boom and bust" cycles for installers and causes some customers to drop out because of cost and timing factors, the report said.

Detroit-based DTE and Jackson-based Consumers initiated the lottery system to ease their administrative burdens and spread the programs out over several years. For example, the utilities' initial solar programs were oversubscribed by customers much more quickly than expected.

"A number of Michigan residents have expressed interest in installing solar projects or participating in a community solar project," the report said.

Brad Klein, a senior attorney with the Chicago-based Environmental Law & Policy Center, said eliminating the lottery system and moving to a more structured system can reduce costs and delays along with minimize customer and installer frustration.

The report concludes that clear improvements "can be made to allow for greater market confidence, the elimination of boom-and-bust cycles and more responsiveness to the falling price of solar materials, labor and balance of system."

To address these issues, the staff report recommended three options the utilities should consider this year. Each of the options includes financial incentives or subsidies that would help to defray costs of installing residential solar rooftop panels or community solar programs.

Option 1: Tax credits

Under this option, a residential utility customer would use a 30 percent federal tax credit available until the end of 2016 to install a 5,000-watt rooftop solar panel.

Installing a 5,000-watt rooftop system costs the average homeowner about $17,500 before federal tax credits and $12,500 with the credits. Once installed, customers simply would enroll in Michigan's 6-year-old net metering program, which allows customers to offset costs of electric power by using solar panels or other renewable-energy sources.

DTE and Consumers would pay customers a subsidy based on solar production. DTE estimates the subsidy, which the utility says is required to cover transmission line infrastructure costs, currently is about 9 cents per kilowatt-hour.

To fund the expanded solar program, DTE and Consumers could each use the $15 million they have banked in collected customer fees so far from a renewable-energy surcharge, said Klein, who is a member of the work group.

"The staff's recommended program expansions could easily be funded out of those resources alone without any increase in existing customer renewable-energy surcharges," he said.

Both utilities said they are taking time to evaluate the report before making final decisions regarding the report's recommended options for expanding current programs.

Option 2: Meter and credit

Under the second option, participating customers would pay full electric rates to utilities. Customers' solar generation would be metered and credited at a special "value of solar" rate, yet to be developed for Michigan, plus given a "renewable-energy credit" on their bill.

For example, the VOS credit could be equal to 10 cents per kilowatt-hour and the REC credit to 5 cents per kilowatt-hour to bring the total credit to 15 per kilowatt-hour. Those credits would be subtracted from the customer's full electric bill.

Customers also would pay a flat $75 interconnection fee to cover transmission and infrastructure repair costs.

Option 3: Hybrid

Under option three, utility companies could offer customers a blend of the first two options. For example, the customer would use net metering, but any extra solar power generation sent to the utility electric grid would be credited using the VOS reimbursement system.

For utilities, the staff report said, the benefit for option three is that transmission and infrastructure costs would be partially covered because customers are also paying retail rates for electricity they purchase. Customers benefit because they can generate solar power and receive savings on their bills.

Market demand

Under all three options, residential customers would be limited to a maximum 20 kilowatts of solar generation.

Option one can be immediately implemented because utilities would have to revise their energy plans only slightly, said Doug Jester, a principal with 5 Lakes Energy LLC, a Lansing-based energy consulting firm.

"In the long run, I prefer option three as being based on principles that will be good policy and workable even if solar takes off and is widely used in Michigan," Jester said.

The staff report said customers and solar installers favor all three options because it would eliminate the lottery system.

Mixed views

Early reaction to the draft report was, as expected, mixed, depending on whether the expert represents a utility company or a solar advocacy group. The final report with work group committee comments is expected to be released to the public June 30.

"We took part in a healthy conversation about options for solar energy, and we will look carefully at the options laid out in this report," Brian Wheeler, Consumers senior public information director, said in a statement to Crain's.

David Harwood, DTE's director of renewable energy, said DTE will provide comments to commission staff this week.

"DTE Energy supports continued development of renewable energy in Michigan, and we look forward to working with the (commission) and Legislature to develop renewable-energy policies that are cost-effective and fair for all our customers," Harwood said in a statement.

Solar advocates generally praised the report, suggesting utility companies expand solar programs immediately so customers can continue to take advantage of the 30 percent federal solar energy tax credit before it expires at the end of 2016.

"We'll make some detailed recommendations to staff as part of our technical comments, but I think there are some very good ideas here," Klein said.

Lighting the way

If adopted — no vote is planned — these options would join programs for creating larger 20- to 500-kilowatt community solar programs recommended by the commission late last year.

A community solar program, an alternative to rooftop solar panel systems, allows customers, investors or utilities build a large solar panel array on a neutral site to share power generation and cost savings.

The draft offered three options under which utilities could begin to develop a community solar program:

Consumers and DTE could voluntarily fund company-owned community solar projects.

Customers could invest in a joint solar panel project.

A crowdfunded third-party company could create a community solar project, take customer investments and sell solar energy to DTE or Consumers.

The report said that if the utilities agree with the recommendations, Consumers and DTE should move quickly to expand their solar programs because of the 2016 expiration of the solar tax credit.

DTE officials have said the utility plans to produce 2 percent of its state-mandated 10 percent renewable-energy production through solar. Consumers plans to produce 0.7 percent of its 10 percent mandate from solar.

Wheeler said Consumers plans to complete its solar program — called the Experimental Advanced Renewable Program or EARP. When completed next year, EARP will provide about 6 megawatts of solar power.

Klein said the staff report clearly concluded that customer demand is sufficient to expand the utility solar programs in Michigan and that it can be done cost effectively, helping the state's fledgling solar industry, without any further renewable-energy surcharge on electric customers.